162 Executive Bonus Plans are designed for selected, key employees giving total discretion to the employer. To be effective, it usually is used under a "C" corporation versus a "S" corporation.
Eventually, the plan will provide a source of tax-free retirement income for the participant.
Section 162 Option
Under this type of agreement, the employee purchases a cash rich insurance policy and names himself as the owner. This policy may be issued on a single insured basis or a joint insured basis, such as a husband and wife together.
The employer pays the premiums to the Life Company, which is fully tax-deductible by the employer and considered compensation to the employee.
The premiums are considered taxable income to the employee, so often times the corporation will 'double bonus' the employee.
The policy's tax advantages under IRC Section 7702, non-mec rules include tax-free accumulation, tax-free income through loans and withdrawals and tax-free transfer at death.
If the employee is also a stockholder of the company and his/her tax bracket is less than the corporate tax bracket, the 162 can be attractive to the employee-stockholder who wishes to withdraw profits from the corporation.
Retirement Income: This plan can be used as a substitute/supplement for a traditional qualified plan and provide a source of potential tax-free retirement income.
The executive may access his/her plan through the use of withdrawals and policy loans WITHOUT INCURRING INCOME TAX or premature distribution penalties if the contract is qualified as a non-mec under IRC Section 7702.
Portability and Peace of Mind
An Executive Bonus Plan is completely PORTABLE and provides security, not only for the executive, but for the family as well.
The plan is also self-completing as upon the executive's death, the survivor's benefits provide for the family's future financial security.
Benefits to The Employer
Flexible Premium Variable Universal Life Insurance can be considered a potential funding tool for this particular strategy.
When properly established and maintained, these plans offer long-term tax advantages including access to some of the country's top professional money managers.
For example, you may find certain plans that offer the professional management services from such companies as Fidelity, Blackrock, Nationwide, Janus, Oppenheimer, American Funds and others.
At retirement (or under an agreed upon vesting schedule) the key executive can receive federal income tax free retirement income through loans and withdrawals from the policy, providing it's qualified as a non-mec (Sec. 7702) and remains in force and is not surrendered.
These plans are offered by a prospectus only. Be sure to read it carefully.
What We Provide
At Fielder Financial Management, Ltd. we provide the following services:
Action To Take
Click HERE to obtain 162 Executive Plan information
For Faster Service Call 1-800-480-7526
Copyright © 1998
Fielder Financial Management, LTD.
All Rights Reserved.
Securities offered through Fortune Financial Services, Inc. member FINRA, SIPC. Fielder Financial Management, Ltd. not affiliated with Fortune Financial Services, Inc. Mark Fielder, Financial Professional, CA. Insurance Lic. # 0690576.
Disclosure: For more complete information about variable life, including charges and expenses, obtain a prospectus by calling 1-800-480-7526. Read it carefully before you invest or send money. Investment return and principal value of an investment will fluctuate. An investor's units, when redeemed, may be worth more or less than their original investment. Consult your tax advisor.